Proposed Trust Tax Changes and the Impact on Vulnerable Australians

On 19 May 2026 I featured in The Australian discussing concerns about the Federal Government’s proposed changes to the taxation of testamentary discretionary trusts and the potential impact on vulnerable Australians.

Much of the public commentary surrounding these reforms has focused on high wealth families and tax minimisation. In practice, however, testamentary discretionary trusts have long been used by ordinary Australian families for legitimate estate planning purposes, particularly where there is a need to protect vulnerable beneficiaries after the death of a parent or loved one.

A testamentary discretionary trust is a trust established under a Will. These structures are commonly used because they provide flexibility, asset protection and the ability for a trusted person to make decisions for beneficiaries when the person who would otherwise have made those decisions is no longer alive.

In many cases, these trusts are established for the benefit of minor children, beneficiaries living with disability, low income beneficiaries or young adults who may not yet have the maturity or financial capacity to manage significant inheritances themselves.

Historically, Australian tax law has recognised the unique nature of testamentary trusts by allowing eligible beneficiaries, including minors, to access ordinary adult marginal tax rates. This treatment has reflected the fact that these arrangements often exist to provide long term support and financial security following death.

The concern with broad based reforms is that they may unintentionally capture families who are not engaging in aggressive tax planning. The government’s public policy objective to limit the use of trust structures as tax minimisation vehicles runs a risk that vulnerable beneficiaries become collateral damage in reforms aimed at entirely different outcomes.

One of the greatest practical concerns is that complex changes tend to favour those with access to sophisticated legal and accounting advice. Families with significant resources may be able to restructure affairs or adapt to legislative change. Ordinary families may not.

As a result, reforms designed to improve fairness may ultimately place additional pressure on families already dealing with grief, disability, vulnerability or financial uncertainty.

Importantly, even if tax concessions are narrowed in the future, testamentary discretionary trusts are still likely to remain valuable estate planning tools because of the significant asset protection benefits they provide. These structures can assist in protecting inheritances from bankruptcy, relationship breakdowns, financial exploitation and other external risks affecting beneficiaries.

There is nothing controversial about ensuring Australia’s tax system operates fairly. However, reforms should also recognise the longstanding and legitimate role testamentary trusts play in protecting vulnerable Australians and preserving family stability after death.

This debate should not be framed solely as a discussion about tax revenue. It should also involve consideration of fairness, compassion and the practical realities faced by families trying to provide ongoing support for children and vulnerable beneficiaries long after they are gone.

Stuart Lathan

25 May 2026

Collaborative Estate Planning for Blended Families: A Path to Harmony

As family structures evolve, blended families are becoming increasingly common. Couples who have experienced previous marriages and their associated complexities often face unique challenges in estate planning. Collaborative estate planning can be an invaluable approach for these couples, ensuring that their wishes are honoured while fostering family harmony. Here’s why it’s worth considering.

Understanding Blended Families

Blended families consist of parents and children from previous relationships, as well as children from the current union. This complexity can lead to potential conflicts over inheritance, asset distribution, and caregiving responsibilities. In these situations, clear and thoughtful estate planning is crucial to prevent misunderstandings and disputes among family members.

The Benefits of Collaborative Estate Planning

1. Open Communication
   Collaborative estate planning encourages open dialogue among all family members. By discussing intentions and expectations early on, couples can mitigate feelings of uncertainty or resentment. This communication fosters understanding, reducing the likelihood of future conflicts.

2. Tailored Solutions
   Every blended family is unique. Collaborative estate planning allows couples to work with professionals—like estate planners, financial advisors, and coaches—to create tailored solutions that reflect their specific circumstances. This personalised approach can address the needs of both spouses and their respective children, ensuring everyone feels valued.

3. Building Trust
   Establishing a collaborative environment builds trust among family members. When everyone has a voice in the planning process, it promotes a sense of fairness. This can be particularly important in blended families, where children from different marriages may feel uncertain about their roles and futures.

4. Mitigating Family Conflict
   The absence of a clear estate plan can lead to disputes that may strain family relationships. Collaborative estate planning provides a structured approach to decision-making, reducing the potential for conflicts that can arise after a loved one’s passing. By addressing sensitive issues in advance, families can navigate complex emotions more effectively.

5. Clarifying Intentions
   Couples often have specific wishes regarding how their assets should be distributed. Collaborative estate planning ensures that these intentions are clearly documented and communicated. This clarity can help prevent misunderstandings and can serve as a guiding document for family members when difficult decisions arise.

6. Flexible Strategies
   Life circumstances can change, and so can family dynamics. Collaborative estate planning allows couples to implement flexible strategies that can be adjusted over time. Whether it’s through creating trusts, updating wills, or reassessing beneficiary designations, having a collaborative plan makes it easier to adapt to changing needs.

7. Promoting Family Unity
   Ultimately, the goal of collaborative estate planning is to promote unity within the family. When family members feel included and respected during the planning process, it sets a positive tone for future interactions. This unity can be especially important during times of grief and loss.

Steps to get started

To find out more information about our collaborative estate planning services, book a Discovery Call to discuss your situation.

Danielle Manion

Collaborative Lawyer